Criticism of FreshDirect Deal Is Off Base, City Officials Say

The Bloomberg administration on Tuesday staunchly defended its decision to provide the online grocer FreshDirect with an unusually large $127.8 million package of cash and tax breaks to move to the Bronx rather than New Jersey.

As New York officials voted to approve the deal on Tuesday morning, Seth W. Pinsky, president of the city’s Economic Development Corporation, insisted that the agreement would allow the city to retain nearly 2,000 blue-collar jobs and enable FreshDirect to expand at a new headquarters on long-dormant land in the Harlem River Yards.

FreshDirect, which started in Queens in 2002 but has outgrown its buildings there, was a “New York success story” deserving of support, Mr. Pinsky said.

“FreshDirect will make a private investment of tens of millions of dollars in the poorest Congressional district in the country,” he said. “Not only will the city’s investment help create hundreds of construction jobs and up to a thousand incremental industrial jobs for New Yorkers in a still-challenging economic environment, but it will also generate incremental economic activity that will yield a substantial positive return for the city’s taxpayers.”

The deal has come under increasing criticism from government watchdog organizations, some Bronx community groups and the city comptroller, John C. Liu, for what they call its overly generous terms and the fact that the deal was announced by the city last week, before a public hearing and the vote by the city’s Industrial Development Agency.

Mr. Liu described the agreement as one of the biggest deals of its kind by the Bloomberg administration, which has often prided itself on being stingy in giving subsidies for companies threatening to relocate.

“The E.D.C. has not clearly justified why this much money should be used to subsidize this company,” Mr. Liu said. “For the cost of this benefits package, the city could give 4,385 students full, four-year scholarships to CUNY or hire 1,458 new teachers or pay for 350,000 G.E.D. test-prep programs or launch a microlending program for minority and woman entrepreneurs.”

Photo

The online grocer FreshDirect had been wooed by New Jersey. After getting tax breaks and cash, it will stay in New York City.Credit
Robert Stolarik for The New York Times

FreshDirect had threatened to move its operations to Jersey City after receiving a $100 million incentive from New Jersey. State and city officials in New York countered with a bigger package that included $20 million in cash.

Although the bulk of FreshDirect’s customers are in New York, officials there say they found the company’s threat to move across the Hudson River credible. But critics doubted that a company dependent on timely deliveries would risk having to use the Hudson’s often-clogged tunnels and bridges.

The company now plans to build a $112 million complex in the Bronx and over the next 10 years add almost 1,000 jobs to its work force of 1,963. City officials said they were willing to pay a premium for industrial jobs. But before FreshDirect fulfills that promise, the company will have used most of the benefits.

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Most economists are critical of states’ competing for jobs by offering ever-larger subsidies and depleting public resources. It is far better, they say, to improve transportation networks and education that benefit all businesses.

Michael Eberstadt said he was dismayed by the city’s decision to “subsidize my competitor’s advancement over me.” Mr. Eberstadt started Monster Savings, a relatively small online food and supply service in Manhattan. But just as his company is starting to grow, government handed his larger rival another advantage.

Mychal Johnson, a Bronx resident and a member of the local Community Board 1, was highly critical that the city struck a deal without talking to residents about jobs, wages and truck traffic. And, he added, “They don’t even deliver to our community.”

Since the deal was announced, the Bronx borough president, Ruben Diaz Jr., cobbled together a nonbinding agreement in which FreshDirect promised to “make its best efforts” to expand its service in the Bronx and to ensure that 30 percent of the new jobs go to borough residents.

A version of this article appears in print on February 15, 2012, on Page A19 of the New York edition with the headline: Criticism of FreshDirect Deal Is Off Base, City Officials Say. Order Reprints|Today's Paper|Subscribe